You may wonder which daily expenses are considered reasonable business expenses for tax deduction purposes. Incorrect identification can lead to legal risks from tax authorities. Therefore, in this article, KMC will help determine the conditions for expenses to be recognized as reasonable in a business to minimize payable taxes and optimize the budget.
What are reasonable expenses in a business?
Reasonable expenses in a business are actual, necessary expenditures that help the business operate and develop, and are legally recognized and permitted. Specifically, you are allowed to deduct them from revenue before calculating corporate income tax (CIT).
What are the mandatory conditions for reasonable expenses in a business?
However, for an expense to be recognized as reasonable in a business, it must fully meet the conditions stipulated in Clause 1, Article 4 of Circular 96/2015/TT-BTC:
Directly related to business activities
Reasonable expenses must serve the generation of revenue or profit for the business, and be related to production or business activities, not for personal purposes.
For example, purchasing raw materials for manufacturing, renting an office for operations, or paying for transporting goods to customers are reasonable expenses. In contrast, buying personal gifts for employees or personal travel costs are not reasonable expenses.
Have legal invoices and documents
All expenses must be substantiated with legal invoices and documents as prescribed by law for the tax authority to inspect and confirm the transparency of the expenses. Furthermore, invoices must be issued properly and include complete information such as company name, tax code, date, and detailed content.
Some specific types of invoices and documents include: VAT invoices when purchasing office equipment, rental receipts with signatures and full information, service contracts with clear terms.
No cash payments for large expenses
For invoices valued at 5 million VND or more (including VAT), you must make payment through non-cash methods such as bank transfer, credit or debit cards, or other electronic payment methods. This ensures transparency and prevents tax fraud.
Illustrative example:
Company XYZ purchases a batch of raw materials worth 50 million VND. For this expense to be recognized as reasonable, the company must:
- Prove that the materials are used for producing commercial products.
- Have a legal VAT invoice from the supplier.
- Pay the 50 million VND via a bank account.
Some special cases
In addition to the above conditions, some specific expenses must meet additional requirements to be counted as reasonable when calculating corporate income tax (CIT). Below are some examples:
Purchasing goods from self-producing or self-catching individuals
When purchasing goods from individuals who produce or catch them themselves, you must have form 01/TNDN and a set of supporting documents (contract, delivery minutes, and payment documents).
Hiring seasonal labor
In this case, you and the seasonal worker must have a seasonal labor contract and payment documents.
Renting assets (houses, cars) from individuals
You need a lease contract, payment documents, tax payment receipts, and a copy of the ID card of the asset owner.
List of commonly encountered reasonable business expenses
Below is a list of reasonable expenses commonly encountered by businesses. These expenses are recognized under Vietnamese law and thus can be deducted when calculating CIT, helping you optimize costs and ensure compliance.
Depreciation of fixed assets
Depreciation expenses of fixed assets such as machinery, equipment, or transport vehicles are considered reasonable if the following conditions are met:
- The asset is used directly for production or business activities or for employee use.
- The enterprise legally owns the asset and records it in accounting books.
- The depreciation rate complies with Ministry of Finance regulations.
Costs of raw materials, materials, and fuel
This includes the cost of production materials, auxiliary materials, fuel or goods, and costs of services like packaging, transportation, or processing. However, these are only considered reasonable if they do not exceed the limits set by the State.
Expenses without invoices
Some expenses without invoices can still be considered reasonable if the business prepares full documentation as required. Below are common cases:
You purchase goods/services from individuals not engaged in business or households with annual turnover under 100 million VND. In this case, you need to prepare a declaration form (form 01/TNDN), handover minutes, sales contract, and payment documents. Also, note that the purchase price must not exceed market prices.
Example: The company buys vegetables from farmers for 20 million VND, and must prepare a declaration form and payment voucher to validate the expense.
The company purchases goods/services from households with annual turnover over 100 million VND must have invoices from the Tax Sub-department, contract, handover minutes, and payment documents.
Example: Buying construction materials worth 150 million VND from a business household requires tax invoice and payment documents.
If you hire an individual for seasonal work, both parties must sign a seasonal labor contract, with 10% PIT withheld, and maintain records such as the contract, payment voucher, and a copy of the ID card.
Asset rental expenses from individuals
You may rent assets such as office space or warehouses from individuals, but must have a lease contract and payment documents (cash or bank transfer). If the business pays tax on behalf of the individual, tax payment receipts must be added.
Example: Renting office space from an individual for 10 million VND/month and the company pays PIT on behalf—contract, payment documents, and tax receipt must be kept.
Wages, salaries, and bonuses
Employee-related expenses such as salaries, bonuses, or benefits are considered reasonable if:
- There are valid payment documents (payment voucher, bank transfer).
- They are clearly stipulated in the labor contract or the company’s bonus policy.
Example: The company pays 25 million VND/month salary and a year-end bonus of 50 million VND to an employee—must include the labor contract and payment voucher.
Uniform expenses for employees
Uniform expenses are reasonable, but in cash form must not exceed 5 million VND/person/year and are not included in the employee’s taxable income. If the company provides uniforms in kind, there is no limit. However, valid invoices and documents are required.
Example: The company provides uniforms worth 10 million VND/year to employees—must include the purchase invoice from the supplier.
Innovation and improvement bonuses
Bonuses for new innovations or improvements are considered reasonable expenses, but the company must have a clear bonus policy and an appraisal council for the innovation.
Example: The company awards 30 million VND to an employee for proposing an improvement to the production line—must include appraisal report.
Welfare expenses for special labor groups
For female employees, this includes expenses for retraining, post-maternity allowances, or additional health check-ups. For ethnic minority employees, support may include tuition, housing, or social insurance if not already provided by the State.
Example: The company organizes a retraining course for female workers costing 15 million VND—must include valid documents.
Contributions to retirement and insurance funds
Voluntary retirement fund contributions, life insurance, or social welfare funds are counted as reasonable expenses if they do not exceed 3 million VND/person/month and are clearly stated in the labor contract or company policy.
Severance allowance expenses
Severance allowances are recognized as reasonable expenses if the enterprise restructures, changes technology, or faces financial difficulty. The allowance must be at least one month’s salary/year of service (minimum two months’ salary for under 24 months).
Example: An employee resigns after 18 months with an average salary of 12 million VND/month—entitled to 24 million VND in severance.
Rental and repair costs of fixed assets
Rental expenses of fixed assets are allocated over the lease term. Meanwhile, repair costs of rented assets can be recognized immediately or allocated over up to three years.
Example: The company spends 60 million VND repairing rented machinery—allocated at 20 million VND/year over 3 years.
Travel allowance for annual leave
Travel and hotel expenses during employee annual leave are considered reasonable if accompanied by valid invoices/documents as per the Labor Code.
Example: The company reimburses a 5 million VND plane ticket for an employee on leave—must include valid invoice.
General illustrative example:
Consider the case of XYZ technology company, specializing in software development, in 2024:
- Programmer and tech support salaries: 3 billion VND
- Office rent: 800 million VND
- Fixed asset depreciation (computers, servers): 400 million VND
- Software and development tool purchases: 600 million VND
- Online advertising costs: 500 million VND
- Employee training expenses: 200 million VND
Total reasonable expenses:
3 billion + 800 million + 400 million + 600 million + 500 million + 200 million = 5.5 billion VND
Assuming XYZ’s revenue in 2024 is 12 billion VND, with no other significant income, taxable income is calculated as:
Taxable income = Revenue – Reasonable expenses = 12 billion – 5.5 billion = 6.5 billion VND
With a corporate income tax rate of 20%, the payable tax is:
CIT = 6.5 billion × 20% = 1.3 billion VND
By properly recognizing reasonable expenses, XYZ reduced its taxable income from 12 billion to 6.5 billion VND, helping to optimize its tax liability.
In general, managing reasonable expenses in a business is not just about complying with individual items. It is a systematic process, from internal policies (financial and bonus regulations) to handling documents, accounting records, and tax compliance. If you find this process complicated and need support, please contact KMC – Accounting and Tax Consulting Service via hotline +84814894789, +84919889331 (HCMC) or +84814894789 (Hanoi).
